Chapter 2 Dimensions of Logistics

Introduction Modern logistics concepts has come a long way since the 1960s. The big challenge is to manage the whole logistics system in such a way that order fulfillment meets or exceeds ___________________.

Activities in Logistics Management Source: 1993 Ohio State University Career Patterns Study

Various Definitions of Logistics © 2003, Coyle, Bardi, and Langley.

Again, we define Logistics as… “ … that part of _____________________ that plans, implements, and controls the efficient ____ and ______ of _____, _____, and _________ from the point of _____ to the point of ______ in order to meet ____________________.” (Council of Logistics Management 2004)

Value-Added Role of Logistics in a Firm Economic utilities: –_____ utility (what) –_____ utility (where) –_____ utility (when) –___________ utility (why) © 2003, Coyle, Bardi, and Langley.

Value-Added Role of Logistics in a Firm Logistics Interfaces with Operations/Manufacturing –Why/How? Logistics Interfaces with Marketing –Why/How? Logistics Interfaces with Other Areas –Such as?

Logistics Interfaces with Operations & Manufacturing _____________________ –Balance economies of long production runs against increased costs of high inventories. _____________________ –Stocking adequate supplies to ensure uninterrupted production now a logistics function. _____________________ –Efficient and effective flows of raw materials, services, and related information –Some logistics functions are being outsourced. ______________________ –Sales forecasting drives operations/manufacturing planning –Acceptance of seasonal inventory to balance production lead times.

Product PricePromotion Logistics Interface with Marketing

Marketing Offerings -- E.g., A car purchase -- Need for Transportation Automobile A/C, Radio Warranty, Service, etc.

The Importance of Customer Service in Marketing Mix

Logistics Interface with Finance/Accounting Savings Can MAGNIFY Corporate Profitability -- e.g., Net Profit rate = 4% -- A Logistics Savings of: $1 $2 $10 $100 $5000 $40,000 Equals a Product Sales Increase of: $25 $50 $2,500 $125,000 $1,000,000

Logistics Systems & Costs Analyses in the Firm Logistics cost trade-offs ____________________ –Nodes are ____________ (warehouses, plants, etc.); –Links are the _____________ (rail, motor, air, pipe and water). Logistics channel –The network of intermediaries involved in the logistics system.

Total Logistics Costs in Different Modes of Transport Cost CentersRailMotor Transportation $ 3.00 $ 4.20 Inventory Packaging Warehousing Cost of Lost Sales Total Cost $ $ © 2003, Coyle, Bardi, and Langley.

Total Logistics Cost with Different Numbers of Warehouses Cost Centers System 1System 2 Three WarehousesFive Warehouses Transportation$ 850,000$ 500,000 Inventory 1,500,000 2,000,000 Warehousing 600,000 1,000,000 Cost of Lost Sales 350, ,000 Total Cost $ 3,300,000 $ © 2003, Coyle, Bardi, and Langley.

Total Logistics Cost Trade-Offs Total Cost Number of Warehouses Total Cost Costs Transportation Costs Cost of Lost Sales

Nodes and Links in a Logistics System

A Multi-Echelon Logistics Channel

A Complex Logistics Channel

Materials Management v. Physical Distribution in Logistics Channel Frequently the movement and storage of raw materials is far different from the movement and storage of finished goods. Four different classifications of logistics systems –Balanced system - e.g., ________________ –Heavy inbound - e.g., _________________ –Heavy outbound - e.g., ________________ –Reverse systems - e.g., ________________

Wrapping up Logistics Systems & Cost Analyses Remember how complex logistics systems and cost trade-offs are. Keep in mind that the most efficient systems are not always comprised of each system component operating at its lowest possible cost. –The critical concern is to have the entire system operating at its lowest total cost. Level of Optimality –There are often constraints working which result in sub- optimal outcomes. –Additionally, logistics systems must work in harmony with marketing, finance, production, etc.--- this may also result in sub-optimal logistics performance.

Logistics as an industry is a big business. –Defense budget vs. Logistics budget ($ ______ vs. $ __________) More change in the process of logistics during the past ten years than in all decades combined since the industrial revolution. Toward strategic, integrated logistics management. ________________________ has become all that matters. Supply chain management in which logistics takes a vital role is an essential strategic direction in corporate strategy. _______________ is the key in today’s competition. Logistics in Macro Economy

Total Logistics Costs Recreated by Coyle, Bardi, and Langley (2003). FYI… $ 910 billion (2002) – Source: Delaney and Wilson

Major Transportation Costs $ B GM Ford Chrysler Source: Purchasing, Nov. 1994

Inventory Sales Ratio Source: Federal Reserve, Recreated by Coyle, Bardi, and Langley (2003).

Logistics Costs as a Percentage of GDP © 2003, Coyle, Bardi, and Langley.

Factors for Maintaining Lower Logistics Cost as % of GDP Improved Logistics Efficiencies –______________________________ Deregulation of Transportation –_______________________________ Implementation of Information Technology “_________” _________________ Decline of Interest Rates

Chapter Summary Competitive Advantage Source: Michael E. Porter (1985) So, what is logistics? Why is logistics so important in today’s businesses? Logistics management toward competitive advantage